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Duke sees sales growth, posts loss tied to pending power plant sales

Signs of growth buoyed Duke Energy’s first-quarter earnings Wednesday as the company took a nearly $1.4 billion charge for its share of the Midwestern power plant fleet it will soon sell.

Duke’s $97 million loss, or 14 cents a share, was on $6.6 billion in revenue. Duke earned $634 million or 89 cents a share in the same period last year.

Excluding that charge and other one-time costs, earnings were $1.17 a share, well above the Wall Street estimate of $1.12. Adjusted earnings were $1.02 a share for the first quarter of 2013.

Higher rates in the Carolinas and Ohio and frigid winter cold boosted earnings, the company said.

Most significant to Duke was a 2.6 percent jump in retail sales, mostly driven by residential and commercial customers, for the quarter compared to the previous period.

It marked the third straight quarter of sales growth and gave Duke confidence that economic stability is returning to its six-state territory. Sales are up 1.6 percent over the past 12 months, an increase approaching that of pre-recession levels.

“We feel more optimistic than we have for some time because we’re beginning to see the expansion into residential and commercial” customers, CEO Lynn Good said in an interview. Industrial sales had buoyed previous increases.

Duke added 70,000 customers since the first quarter of 2013, an increase not seen since 2008, chief financial officer Steve Young told analysts.

Duke announced in February that it would sell its interest in 13 commercial power plants in the Midwest, citing “volatile returns” in the competitive market. The $1.4 billion charge this quarter reflects the fleet’s estimated fair value and may be adjusted later.

The move, which is expected to be completed late this year or in early 2015, came after Ohio regulators rejected Duke’s request for a rate increase.

Duke’s spill of coal ash into the Dan River is also beginning to be reflected in its financial outlook.

The company has added $500 million to its $5 billion to $6 billion estimate of expected environmental costs over the next decade, reflecting the costs of moving coal ash from ponds at its Riverbend, Dan River and Sutton power plants to lined landfills.

Those costs were part of broad cost estimates for ash disposal that Duke gave a legislative commission last month, spokesman Tom Williams said.

Duke has said the company will pay for the Dan River cleanup but will ask the North Carolina Utilities Commission to pass to customers the costs of closing its 33 ash ponds in the state. Duke has estimated those costs at $2 billion to $10 billion, depending on disposal method, over 20 to 30 years.

Gov. Pat McCrory has also produced draft legislation on ash disposal, which legislators are expected to take up when their session begins next week.

“The state, the governor and the legislature, and Duke are looking for ways to lead as we go forward,” Good said in the interview. “So I think there’s a common discussion around some of the sites and an exploration of options around the broader ash issue.”

The earnings report follows Duke’s annual shareholder meeting last week. Institutional investors including North Carolina state Treasurer Janet Cowell and public pension funds for California and New York City, in response to Duke’s management of ash, voted against the reelection of some directors.

Good said she doesn’t expect to reshape board committees, including one that oversees environmental matters, in response to that criticism other than to fill vacant seats.

But she said she will canoe the Catawba River and other waterways in Duke’s service territory, as an official of the Waterkeeper Alliance asked at the shareholder meeting.

“The team is working on a date,” Good said, laughing. “I’ve had a colleague offer me a lifejacket.”

On another issue, Duke said it is reviewing options for its international business, which mostly consists of hydroelectric power plants in Latin America. The options apparently include selling those assets, whose returns have been hurt by currency exchanges.

“I’m not sure anything is off the table,” Good told analysts. The review will be finished late this year or early next year.

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